MGIC's Insurance-in-Force Rebounds in Second Quarter

Second-quarter and first-half earnings at MGIC Investment Corp. here were down from one year ago, but a statement from the company's chief executive stressed the positives, which occurred in the past three months.

Earnings for the nation's largest mortgage insurer were $149.8 million, or $1.74 per share, and $313.3 million, or $3.61 per share, for the second quarter and first half of 2006, respectively, down from $174.4 million, or $1.87 per share, and $356.4 million, or $3.77 per share, for the same periods in 2005.

There was a decline in net premiums earned of 5.5%, from $311.6 million in the second quarter 2005 to $294.5 million in the most recent quarter. Net premiums written fell 1.3% in the same period, from $309.2 million down to $305.3 million.

New insurance written for the second quarter was $16.1 billion, including $6 billion of bulk business. In the second quarter of 2005, MGIC wrote $16.6 billion, $6.2 billion of it bulk.

MGIC chairman and chief executive Curt S. Culver said in the earnings release that he was pleased with the resumption of growth of insurance-in-force, there was the expected seasonal decline in delinquencies and there were positive joint venture results during the period.

Insurance-in-force totaled $169.8 billion as of June 30, 2006. As of March 31, 2006, MGIC's primary insurance-in-force was $166.9 billion, which appears to be the bottom point. On Dec. 31, 2005, the company had $170 billion in-force.

Persistency at MGIC continued to rise, hitting 64.1% as of June 30, 2006, up from 61.3% six months prior and 60.9% one year prior. In a conference call to announce the results, Mr. Culver cited this as one of the reasons for the turnaround to growth in primary insurance-in-force.

Another positive trend is growth in MGIC's Single File product. This product was created to compete with the 80-10-10 or piggyback loans.

Mr. Culver told the conference call that 9.9% of new flow insurance written was the Single File product, up from 7.5% in the first quarter 2006.

Another factor impacting 80-10-10s as a competitor to mortgage insurance is rising interest rates. Mr. Culver said the 80-10-10 is not dying off, but MGIC is "inching forward" in competing against it.

Mr. Culver said during the call that the Mortgage Insurance Cos. of America will soon start an industry campaign promoting the benefits of mortgage insurance to real estate agents and mortgage brokers. MICA members (all the private mortgage insurers with the exception of Radian) will share the cost of the campaign. A spokesman for MICA said the campaign is still in the planning stages.

The inventory of delinquent loans at MGIC is 73,354, of which approximately 1,650 are related to the three Gulf hurricanes, Katrina, Rita and Wilma. The percentage of loans delinquent, including bulk loans, is 5.77%, compared with 6.58% at the end of last year and 5.62% at the end of the second quarter 2005. Take out the bulk loans, MGIC has a delinquency percentage of 3.82%, down from 4.52% as of Dec. 31, 2005 but up from 3.70% on June 30, 2005.

Losses incurred in the second quarter totaled $146.5 million, up from $136.9 million for the same period in 2005.

In the conference call, Mr. Culver said there were three unusual events that affected paid claims.

The first took place last October when the new federal bankruptcy law went into affect. The implementation of this law forced the timeline on when many people would normally file for bankruptcy forward.

He said the accelerated filings pulled $12 million in claims forward from 2007. MGIC saw $8 million of those claims in the second quarter and will see the remaining $4 million in the third quarter.

The second event was that Fannie Mae and Freddie Mac lifted its moratorium on foreclosures in the Gulf States in the areas that were hit less hard. The company is paying claims on properties where the defaults were credit related, not on properties that were damaged in the storms. This had a $2 million impact.

Event No. 3, he said, was specific to Ohio. Foreclosures in that state had built up because of a shortage of magistrates. Now, there has been eight new magistrates appointed and they are working through the backlog.

While the company feels paids will come in at what it said in previous guidance, it now thinks it will be at the high end of the guidance, at approximately $600 million.